DETERMINATION OF VAT STILL DUE

DETERMINATION OF VAT PAYABLE

The VAT still due of taxpayers is computed as:

Output VAT P XXX

Less: Creditable Input VAT XXX
Net VAT payable P XXX
Less: Tax credits / payments XXX
Tax still due / (Overpayment) P XXX

TAX CREDITS / PAYMENTS

1. VAT paid in the previous two months -for quarterly VAT returns
2. VAT paid in return previously filed, in the case of amended return
3. Advanced payments made to the BIR
4. Final withholding VAT on sales to the government
5. Advanced VAT on certain goods

FINAL WITHHOLDING VAT

The final withholding VAT is the 5% of sales withheld by government and GOCCs. Remember
that the VAT payable on sales to government and GOCCs is zero because the VAT due (5%) is
pre-deducted at source. This amount is also deducted from the VAT payable in computing the
“VAT still due or overpayment.”

Illustration
ABC Company had the following data during the quarter:

Sales, net of VAT Input VAT

Sales to private entities P 1,350,000 P 60,000
Export sales 300,000 36,000
Sales to government 250,000 24,000
Sales of exempt goods 100,000 2,000
Total P 2,000,000 P 122,000

ABC Company had P12,000 input VAT carry-over from the preceding quarter. ABC Company
paid a total of P 28,000 VAT in the first two months of the quarter. It also made voluntary advanced
payments of P 20,000 to the BIR in anticipation of its quarterly VAT payable.

The output VAT shall be computed from the vatable sales as follows:

Sales to private entities (P 1,350,000 x 12%) P 162,000

Export sales (P 300,000 x 0%) 0
Sales to government (P 250,000 x 12%) 30,000
Output VAT P 192,000
The allowable or creditable input VAT shall be computed as:

Input VAT carry-over P 12,000

Input VAT on sales to private entities 60,000
Input VAT on export sales 36,000
Standard input VAT on sales to gov’t (P250,000 x 7%) 17,500
Total allowable input VAT P 125,000

The “Tax still due or overpayment” shall be computed as:

Output VAT P 192,000

Less: Total allowable input VAT 125,000
Net VAT payable P 66,500
Less: Tax credit/payments
VAT paid in previous monthly returns P 28,000
Advanced payments to the BIR 20,000
Final withholding VAT (P250,000 x 5%) 12,000 60,500
Tax Still Due or (Overpayment) P 6,000

ADVANCED VAT
The owners or sellers of the following goods are required to pay advanced VAT before their
withdrawal at the point of production:
a. Refined sugar
b. Flour
c. Naturally grown and planted timber products

Technically, advanced VAT is not an input VAT and not included as part of the allowable input
VAT. It is an advanced payment which is a deduction after the net VAT payable is determined.
However, unutilized advanced VAT in the period may form part of the “Input VAT carry-over” if
opted by the taxpayer.

ADVANCED VAT ON SALE OF SUGAR

Sugar- refers to sugar other than raw cane sugar or those with sugar content of sucrose by weight,
in the dry estate corresponds to a polarimeter reading 99.5° and above and whose color is 800 ICU
or less. (RR8-2015)

Sugar includes cane sugar produced from a refining process, sugar refinery, a production line of
sugar mill accredited by the BIR to producing and or capable of producing sugar with polarimeter
reading of 99.5° and above and for which the quedan issued therefore is verified as such by the
Sugar Regulatory Administration.

Before any warehouse receipts or quedan are issued or before the sugar us withdrawn from sugar
mill/refinery, the advanced VAT shall be paid by the owner/seller to the BIR through an authorized
agent bank or to a revenue collection officer or deputized city or municipal treasurer in places
where there are no authorized agent banks.
“Sugar owners” refers to a person who has legal title over the sugar and may include sugar
planters, traders, sugar millers, cooperatives or associations.

Based price of advanced VAT: P 1,400 per 50 kg. bag

Illustration 1
Sugarco Company buys sugar cane from farmers, processes it is refinery and sells the output to
wholesalers. The following relates to its processing and refining activities during a month:

Purchase of cane sugar from cane farmers P 2,000,000

Refining expenses, including P 24,00 VAT 324,000
Total production of 50 kg-bag refined sugar 4,000 bags

The advanced input VAT to be paid prior to the withdrawal of the sugar from the refinery shall be:

Advanced VAT = 4,000 bags x P 1,400 x 12% P 672,000

Assuming Sugarco was able to sell 3,800 bags at P 1,800/bag during the month the VAT payable
shall be computed as:

Output VAT (3,800 bags x P1,800 x 12%) P 820,800

Less: Input VAT
Presumptive input VAT (P2,000,000 x 4%) P 80,000
Regular input VAT 24,000 104,000
VAT payable P 716,800
Less: Tax credits/ Payments
Advanced input VAT 672,000
Tax still payable/Overpayment P 44,800

Note:
1. Remember that an owner of refined sugar can also claim as presumptive input VAT.
2. Tax credit for the advanced input VAT must be supported by a Payment Order showing
payment of the advanced VAT.
3. In case of “Overpayment,” the same may be carried over as “Input VAT carry-over.”

Illustration 2
Muscovado Corporation produces and refines its sugar production. During the month, it purchased
P 1,000,000 worth of sugar cane from members which it processed into P 3,500,000 worth of
refined sugar.

A cooperative is exempt from VAT. Hence, it is not subject to the requirement of advanced VAT.
ADVANCED VAT ON SALE OF FLOUR MILLERS
“Flour Miller” is a person who is engaged in the milling of imported wheat to produce flour as
finished product, where such wheat may be directly imported or purchased from an
importer/trader.

“Wheat Trader” is a person who is engaged in the importing/buying and selling or imported wheat.

Importation of wheat by a flour miller

The advanced VAT on the future sale of flour milled from imported wheat shall be paid prior to
the release from Custom’s custody of the wheat, which is imported and declared for milling.

Purchase of wheat by flour millers from traders

The purchase of imported wheat from traders by flour millers shall also be subject to advance VAT
and shall be paid by the flour miller prior to delivery of the wheat by the trader.

The importation of wheat by any trader shall be exempt from the payment of advanced VAT
regardless of its intended use.

It must be noted that the importation of the wheat is not the object of taxation. The importation of
wheat which is an agricultural food product in original state es exempt from VAT. The purpose of
advanced is to get an advanced tax collection from VAT on the future sale of the flour by millers.

The importation of agricultural or marine food products normally does not require an Authority to
Release Imported Goods (ATRIG) from the BIR for its release from the Custom’s warehouse. In
view of the advanced VAT. However, importers of wheat, whether miller or trader, shall secure
an ATRIG from the BIR, regardless of the intended use of the imported wheat.

Basis of the advanced VAT

For wheat imported millers – 75% of the sum of:

a. Invoice value multiplied by the currency exchange rate on the date of payment.
b. Estimated customs duties and other charges prior to the release of the imported wheat from
Custom’s custody, except for advanced VAT, and
c. 5% of the sum of a and b.

*The advanced is computed as 12% x 75% x 10% x (a + b).

Illustration
A VAT-registered flour miller imported wheat from abroad at a total invoice price of $100,000.
P30,000 total charges was estimated to be paid prior to the release of the wheat from Customs.
The Peso-Dollar exchange rate at the date of payment was P43. 50 to $1.00.

The advanced input VAT shall be computed as:

Invoice price ($100,000 x P 43.50) P 4,350,000

Estimated Custom’s charges 300,000
Landed cost P 4,650,000
Multiply by: 105%
Total P 4,882,500

Total P 4,882,500
Multiply by: 74%
Advance VAT base P 3,661,875
Multiply by: 12%
Advanced VAT P 439,425

For wheat purchased by flour millers from wheat traders – 75% of the sum of:
a. Invoice value
b. Estimated freight
c. And 5% of the sum of a and b.

Illustration
A flour miller purchased wheat from BCD Company, a wheat trader, amounting to P90,000. The
estimated freight was P 20,000.

The advanced VAT shall be computed as:

Invoice price P 900,000

Estimated freight 20,000
Landed cost P 920,000
Multiply by: 105%
Total P 966,000
Multiply by: 75%
VAT base P 724,500
Multiply by: 75%
Advanced VAT P 86,940

The Payment Order, together with the deposit slip issued by the authorized agent bank or the ROR
issued by the Revenue Collection Officer, shall serve as proof for such advanced payment for
purposes of claiming input VAT.

ADVANCED VAT ON THE TRANSPORT OF NATURALLY GROWN AND PLANTED

TIMBER PRODUCTS

The VAT on the transport of naturally grown and planted timber products for purposes of
consummating a sale shall be paid in advanced by the owner/seller to the BIR through authorized
agent banks (AAB), revenue collection officer (RCO), or deputized municipal treasurers in places
where there are no AABs.
Basis of advanced VAT
Luzon Visayas Mindanao
Philippine mahogany group
Manggasinoro group
Manggachapui Group
Narig Group P 1,400/m3 P 1,400/m3 P 1,425/m3
Palosapis Group
Guijo Group
Yakal Group 1,500 / m3 1,500 / m3 1,500 / m3
Apitong Group 1,260 /m3 1,260 /m3 1,260 /m3
Softwood Species except 715/m3 715/m3 715/m3
Igem
Igem 1,275/m3 1,275/m3 1,275/m3
Nato 1,000/m3 1,000/m3 1,000/m3
Furniture/ Construction 950/m3 950/m3 950/m3
hardwood
Premium species, allowed cut 3,000/m3 3,000/m3 3,000/m3
Lesser-used 700/m3 700/m3 700/m3
Pulpwood, chip wood and 95/m3 95/m3 95/m3
mathwood species (per m3)

The owner/concessionaire/seller of the naturally grown or private timber products shall not allow
any transport of said timber products from the cutting area without the advanced payment of VAT.

Illustration
Forester Isidro is a VAT registered person and a licensee under the Private Forest Development
Agreement with the government in Kalinga Province in Luzon. He harvested 1,700 cubic meter of
mahogany.

Forester Isidro shall pay the following advanced VAT on the timer prior to the transport of the
same:

Advanced VAT= 1,700 m3 x P1,400/m3 x12% P 285,600

The advanced VAT shall be creditable against the output VAT of Forester Isidro along with all
other items of creditable input VAT he may have in his business operation.

Advanced Percentage Tax

Assuming Forester Isidro is non-VAT-registered person, he shall be subject to the advanced VAT
but shall pay 3% advanced percentage tax (Sec.6, RR13-2007). The advanced percentage tax is
creditable against the monthly or quarterly percentage tax return (Sec. 7, RR13-2007).

A Certificate of Advanced Payment (CAP) shall be released by the BIR upon payment of the
advanced tax or advanced percentage tax. This shall serve as proof for the credit of the advanced
VAT against the output VAT or percentage tax of the timber owner or seller as the case may be.
TAX STILL DUE
The resultant “Tax still payable” in the VAT return is paid to the government as follows:
• 1st month of the quarter- within 20 days from the end of the month
• 2nd month of the quarter- within 20 days from the end of the month
• 3rd month of the quarter- within 25 days from the end of the quarter

OVERPAYMENT
The resultant “Overpayment” or negative net amount in the VAT return may be treated as “Input
VAT carry-over” to the succeeding period.

ALTERNATIVE TREATMENT ON CERTAIN OVERPAYMENTS

1. Overpayment arising from input VAT on zero-rated sales
2. Overpayment arising from advanced input VAT

INPUT VAT ON ZERO-RATED SALES

The unutilized input VAT arising from zero-rated sales or effectively zero-rated sales may be
claimed as a:
a. tax refund
b. tax credit against other internal revenue taxes

When and where to claim for VAT refund or TCC

Within two years, the claim for refund or tax credit shall be made to the following, whichever is
applicable:
1. Bureau of Internal Revenue
2. Board of Investment
3. One-Stop-Shop and Duty Drawback Center of the Department of Finance

Prescriptive period for claim for refund or tax credit

The two-year prescriptive period for the claim for refund or tax credit is counted from the close of
the taxable quarter when the zero-rated sales were made, not from the date of payment of the VAT
(CIR vs. Mirant Pagbilao Corporation, G.R. No. 172129, September 2008).

No other remedy for unutilized input VAT on zero-rated sales

Previously, the BIR allowed the outright expensing of the unutilized input VAT under BIR Ruling
DA-(VAT-021) 121-10 when the prescriptive period lapsed, the claim for refund or credit was
denied or when the claim was voluntarily withdrawn by the taxpayer.

Under the BIR Ruling No 123-2013, the BIR withdrew the expense treatment for lack of legal
basis. The unutilized creditable input VAT attributable to zero-rated sales can only be recovered
through the application for refund or tax credit (RMC 57-2013).

Perfect matching of input VAT with zero-rated sales not required

The input VAT reported in past quarters which are attributable to zero-rated sales reported in
subsequent quarters are still claimable as tax credit or tax refund.
Input VAT claimed for refund or tax credit shall no linger be creditable against Output VAT and
must be removed from the total amount of creditable input VAT.

UNUTILIZED ADVANCED VAT

Advanced VAT payments which remain unutilized at the end of the taxpayer’s taxable year when
advanced payment was made, and which is tantamount to excess payment may, at the option of
the owner/seller/taxpayer or importer/miller/taxpayer, be available for the issuance of a tax credit
certificate (TCC)

Requisite for TCC Claim

1. The seller/owner or importer/ miller must file a claim for credit within 2 years from the
date of filing of the fourth quarter VAT return of the year such return was made.
2. Claim shall be limited to the unutilized advanced VAT payment and shall not include
excess input VAT.

WHEN INPUT VAT MAY BE CLAIMED FRO REFUND

There are only two cases where a taxpayer can ask for refund of input VAT:
1. Unutilized input VAT on zero-rated sales
2. Unutilized input VAT upon cancellation of VAT registration due to retirement from or
cessation of business

BASIC ILLUSTARTIONS- VAT PAYABLE COMPUTATION

Monthly Applications

Illustration 1
Genesis Company, a VAT taxpayer, had the following sales and purchase of goods during the
month:
VAT Non-VAT
Persons Persons Total
Sales to P 4,000,000 P 2,000,000 P 6,000,000
Purchases from 2,500,000 1,200,000 3,700,000

The VAT payable shall be computed as follows:

Output VAT (P6M x 12%) P 720,000

Less: Input VAT (P2.5M x 12%) 300,000
Net VAT payable P 420,000

Illustration 2
Exodus Company, a VAT service provider, had the following data during the month:

Total collections from customers P 504,000

Purchase invoices from VAT-suppliers 425,600
Purchase invoices from non-VAT suppliers 60,000
The VAT payable shall be computed as follows:

Output VAT (P504,000 x 12/112) P 54,000

Less: Input VAT (P425,600 x 12/112) 45,600
Net VAT payable P 8,400

Note: The invoice price is VAT-inclusive. The total collections from customers are naturally
VAT-inclusive; hence, the VAT is determined by multiplying 12/112.

Quarterly Applications

Illustration 1
Eagle Company had the following transactions, net of any VAT, in the third quarter of 2020:

July August September

Sales P 1,200,000 P 1,100,000 P 1,200,000
Purchases
Goods and services 700,000 400,000 850,000
Equipment (3-year life) - 900,000 -
There is a P 50,000 unutilized input VAT in the second quarter 2020.

The VAT payable shall be computed in the VAT return as:

Output VAT P 144,000 P 132,000 P 420,000

Less: Allowable input VAT
Input VAT carry-over P 50,000 P - P 50,000
Goods/services 84,000 48,000 234,000
Equipment 108,000 108,000
Net VAT payable P 134,000 P 156,000 P 28,000
Less: tax credits/payments
VAT paid- prior months - - 10,000
VAT still due (overpayment) P 10,000 (P 24,000) P 18,000

Note: The input VAT carry-over in the second month is not credited in the third month.

Illustration 2
Denver Company had the following transactions, net of VAT, in the first quarter of 2020:

January February March

Sales P 1,000,000 P 1,200,000 P 1,400,000
Purchases
Goods and services 1,100,000 700,000 900,000
Building (3-year life) 2,400,000 - -
The VAT payable shall be computed in the VAT return as:

January February March

Output VAT P 120,000 P 144,000 P 432,000
Less: Output VAT
Input VAT carry-over P - P 20,000 P -
Goods/services 132,000 84,000 324,000
Building 8,000 8,000 24,000
Net VAT payable (P 20,000) P 32,000 P 84,000
Less: Tax credit/payments
VAT paid – prior months - - 32,000
VAT due and payable (P 20,000) P 32,000 P 52,000

Note:
1. The excess input VAT in January is carried as Input VAT carry-over in February.
2. The input VAT on the building is amortized over 36 months.

Mixed Transactions

Illustration 1
Mr. Munda is a VAT-registered medical practitioner and is also an operator of two jeepneys. He
had the following receipts and purchases during the month:

Practice Jeepneys
Gross receipts, exclusive of tax P 300,000 P 40,000
Purchases of supplies/ parts, invoice price 84,000 5,600

The VAT payable shall be:

Output VAT (P300,000 x 12%) P 36,000

Less: Input VAT (P84,000 x 12/112) 9,000
Net VAT payable P 27,000

Note: Receipt from transport of passengers are specifically subject to percentage tax and are
exempt from VAT. The input VAT traceable thereto is part of cost and expenses.

Illustration 2
Ms. Marian, a VAT taxpayer, had the following sales or receipts:

Sales of invoices Traceable

Or receipts input VAT
Restaurant P 672,000 P 12,000
5 taxi units 400,000 6,000
Fruit and vegetable shop 200,000 4,000

The VAT payable shall be computed as follows:

Output VAT (P672,000 x 12/112) P 72,000
Less: Input VAT 12,000
Net VAT payable P 60,000

Note:
1. The receipts from the restaurant are vatable. Collections or receipts are naturally VAT-
inclusive; hence, the VAT is computed by a factor of 12/112.
2. Taxis are common carriers subject to 3% common carrier’s tax. The fruit and vegetable
shop is VAT -exempt. The P6,000 and P 4,000 are part of expenses.

Illustration 3
A VAT-registered taxpayer had the following sales and purchases during a month:

Sales, net of Traceable

VAT Input VAT
Sales to PEZA locators P 900,000 P 48,000
Sales to Asian Development Bank 600,000 24,000
Sales to the government 100,000 6,000
Sales to private customers 1,400,000 90,000

The VAT shall be computed as follows:

Output VAT (P100,000 + P1,400,000) x 12% P 180,000

Less: Creditable Input VAT on:
Zero-rated sales (P48K + P24K) P 72,000
Government sales* 7,000
Regular sales 90,000 169,000
Net VAT payable P 11,000

Note:
1. Zero-rates sales (sales to PEZA and ADB) do not result in an output VAT.
2. The standard input VAT on government sales is 7% of sales.

With Non-traceable or Common Input VAT on Mixed Transactions

Illustration 1
A dealer of food products and household products had the following sales and input VAT:

Sales of unprocessed agricultural food products P 400,000

Sale of processed agricultural goods 600,000
Sales of household goods 500,000
Total sales P 1,500,000
Total input VAT during the month:
- Purchased of goods for sale P 42,000
- Purchased of store equipment (4 year life) 60,000
Total input VAT P 102,000

The creditable input VAT shall be:

Total input VAT P 102,000

Less: Input VAT on exempt sales
P400,000/P1,500,000 x P60,000 16,000
Creditable input VAT P 86,000

Note:
1. The P 42,000 input VAT on purchase of goods is apparently traceable to vatable sales. The
purchases of agricultural food products least likely include any input VAT.
2. The input VAT on the equipment should not amortized because the monthly acquisition
cost is below P1M. The acquisition cost is P 60,000÷ 12% = P500,000.
3. The store equipment is conceivably for general use benefiting both exempt and vatable
sales. The input VAT on the store equipment is therefore allocated. The portion of the input
VAT traceable to exempt sales is removed from the creditable input VAT.

The VAT payable shall be computed as follows:

Output VAT (P600K + P500K) x 12% P 132,000

Less: Input VAT 86,000
Net VAT payable P 46,000

Illustration 2
Tortoise Bus Line is a VAT-registered operator of several buses. During the month, it had the
following receipts and payments:

Receipts from passenger P 700,000

Receipts from baggage, cargoes and mails 100,000
Purchase of diesel, inclusive of VAT P 448,000
Bus maintenance and insurance, inclusive of VAT 134,400
Salaries and commission od staff 150,000
Life insurance of drivers 20,000
Office supplies, utilities and rental, inclusive of VAT 100,800

The total input VAT shall first be determined from the vatable purchases:

Purchase of diesel, inclusive of VAT P 448,000

Bus maintenance and insurance, inclusive of VAT 134,400
Office supplies, utilities and rental, inclusive of VAT 100,800
Total purchases with VAT P 683,200
Total purchases with VAT P 683,200
Multiply by: 12/112
Total Input VAT P 73,200

Note:
1. Life insurance and salaries are VAT-exempt. These have no input VAT.
2. The P73,200 cannot only be traced by total operations; hence, it must be apportioned to
each sales transaction class.
3. The receipts from, passengers are subject to common carrier’s tax. The receipts from
cargoes, baggage and mails are vatable which must be subjected to VAT because the
taxpayer is VAT-registered.

The creditable input VAT shall be:

P 73,200 x P 100,000/P 800,000 P 9,150

The VAT payable shall be computed as follows:

Output VAT (P100,000 x 12%) P 12,000

Less: Creditable Input VAT 9,150
Net VAT payable P 2,850

INTEGRATED ILLUSTRATIONS

Integrative Case 1
A VAT taxpayer using the cash basis presented the following data during the month:

Professional fees billed, VAT-inclusive P 896,000

Professional fees collected, VAT- inclusive 784,000
Client advances, VAT-exclusive 200,000
Salaries expense 300,000
Depreciation expense 50,000
Supplies expense, inclusive of VAT 33,600

During the month, an equipment with 8 year estimated useful life was purchased. An input VAT
of P 144,000 was paid on the purchase.

The gross receipt and output VAT shall be computed as:

Professional fees collected (P784,000/112) P 700,000

Client advances 200,000
Gross receipt P 900,000
Multiply by: 12%
Output VAT P 108,000

The creditable input VAT shall be computed as:

Input VAT on equipment (P144,000/60 mos.) P 2,400
Input VAT on supplies (P33,600 x 12/112) 3,600
Total P 6,000

Note:
1. The input VAT on the equipment is amortized because it is worth more than P1M (i.e.,
P144,000/12%). Equipment is amortized over not more than 60 months,
2. There is no claimable input VAT on expense items that do not represent payments. The
input VAT on the depreciation is claimed on the purchased of the asset. The salaries
expense has no input VAT since compensation is VAT-exempt.

The VAT payable shall be:

Output VAT P 108,000

Less: Input VAT 6,000
Net VAT payable P 102,000

Integrative Case 2
Danube Corporation reported the following sales and purchases during the third calendar quarter:

July August September

Sales* P 1,100,000 P 1,340,100 P 1,240,000
Unsold consignment sales from:
- May 64,800 12,800 -
- June 86,200 37,500 0
- July 122,800 80,400 48,000
- August - 150,000 90,000

Purchases:
- Goods from VAT supplier’s P 896,000 P 1,008,000 P 784,000
- Machineries from
non-VAT suppliers 1,232,000 - -

Additional Information:
1. The reported sales include direct sales and those mad by consignees but excludes sales of
goods previously deemed sold.
2. All amounts are inclusive of VAT.

The VAT payable in each month may be computed as:

July August September

Vatable sales
Direct sales P 1,100,000 P 1,340,000 P 3,680,000
Deemed sales (60-old day) 64,800 37,500 150,300
Total P 1,164,000 P 1,377,600 P 3,830,400
Multiply by: 12/112 12/112 12/112
Output VAT P 124,800 P 147,600 P 410,400
Less:
Vatable purchase P 896,000 P 1,008,000 P 2,688,000
Multiply by: 12/112 12/112 12/112
Input VAT P 96,000 P 108,000 P 288,000
VAT paid in prior months - - 68,400
Total P 96,000 P 108,000 P 356,400
VAT due and payable P 28,800 P 39,600 P 54,000

Integrated Cases 3
Nasam-it Sugar Company produces refined sugar. It had the following transactions during the
month:

Total production (50-kg bag) 2,000 bags

Total bags exported at $55/bag 400 bags
Total bags sold to local buyers at P 2,000/bag 1,600 bags
Purchase of sugar cane P 1,200,000
Purchase of other supplies (VAT inclusive) 224,000
Electricity bill (VAT inclusive) 44,800

The current exchange rate is P42. 50: $1.

The advanced VAT to be paid upon milling shall be: 2,000 bags x P 1,400 x 12% = P336,000.

The total input VAT shall be computed as follow:

Presumptive input VAT (P1.2M x 4%) P 48,000

Advanced input VAT 336,000
Regular input VAT
Electricity bill (P224,000 x 12/112) 24,000
Other supplies (P44,800 x 12/112) 4,800
Total creditable input VAT P 412,800

The VAT payable shall be:

Output VAT (1,600 bags x P 2,000 x 12%) 384,000

Less: Creditable Input VAT P 412,800
Net VAT payable (P 28,800)

Note:
1. There is no need to allocate the P 280,800 total creditable input VAT in this case because
there are only two types of vatable sales: regular sales and export sales. Note that any input
VAT allocable to export sales would still be creditable against output VAT.
 2. Allocation is necessary if the taxpayer intends to claim the input VAT traceable to export
sales as tax refund or tax credit.

Integrative Case 4
A realty dealer sold the following properties during the quarter:
October November December
House and lot A P 1,000,000 - -
House and lot B P 3,500,000 -
Residential lot 2,000,000 - -
Parking lot - P 500,000

Input VAT paid on the following purchases:

Office supplies and utilities P 64,000 P 24,000 P 32,000
Machineries and equipment 300,000 10,000 -

Additional Information:
1. House and Lot A and the parking lot were sold for cash. House and lot B was dues for 10
monthly installments starting November.
2. The residential lot had a fair value of P 2.4M and was payable with 30% down payment
and the balance over 24 monthly installments.
3. The machineries and equipment are expected to last for 10 years.

Note:
1. The sake of house and lot A is VAT-exempt, but the sales of House and lot B and the
residential lot are vatable since they are above the price ceiling. The sale of the parking lot
is vatable and is not subject to price ceilings.
2. The residential lot shall be taxed at its fair value since this is higher than the selling price.
Note that the 30% down payment already disqualifies the sale for installment reporting for
output VAT.
3. House and lot B qualifies for installment reporting of the output VAT since it has a 20%
(i.e., 1/10 x 2) ratio of initial payment.
4. The aggregate acquisition of machineries and equipment in October exceeds P1M (i.e., P
300,000 ÷ 12%); hence, its input VAT must be amortized over useful life in months or 60
months, whichever is shorter.
5. The input VAT on acquisition of machineries and equipment in November is claimable
outright in the same month because the aggregate acquisition cost (P10,000 ÷ 12%) does
not exceed P1M.

Summary of timing of recognition: Output VAT and Input VAT

Output VAT October November December

House and lot A Exempt - -
House and lot B1 - P 42,000 P 42,0000
Residential lot2 P 288,000 - -
Parking lot - - 60,000
Total Output VAT P 288,000 P 42,000 P 102,000
Input VAT
Office supplies and utilities P 64,000 P 24,000 P 32,000
Machineries and equipment 5,000 15,000 5,000
Total Input VAT P 69,000 P 39,000 P 37,000

Note:
1. P 3M x 12% = P420,000÷ 10 installments = P42,000/installments
2. P 2.4M x 12% =P 288,000

Since there is an exempt sale in October, the P 69,000 input VAT therein needs to be allocated
between vatable and exempt sales based on the ratio of sales.

Thus, the creditable input VAT in October shall be:

P 69,000 x P 2,000,000/ P 3,000,000 P 46,000

The VAT payable in each month shall be computed and presented in the VAT returns as follows:

Output VAT P 288,000 P 42,000 P 432,000

Less:
Creditable input VAT 46,000 39,000 122,000
VAT paid in prior months - - 245,000
Total P 46,000 P 39,000 P 367,000
Net VAT payable P 242,000 P 3,000 P 65,000

COMPLIANCE REQUIREMNETS
1. Invoicing requirement
2. Accounting requirement
3. Filing of VAT return
4. Filing of quarterly summary lists
5. Government withholding

VAT Invoicing Requirements

A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services.

Using a single invoice or receipt for mixed sales

A VAT-registered taxpayer may use a single invoice or receipt involving VAT and non-VAT
transactions, provided that:
a. The invoice or receipt must clearly indicate the breakdown of the sales or receipt among
taxable, exempt and zero-rated components and
b. The calculation of VAT on each proportion of the sale shall be shown on the invoice or
receipts.
Using a separate invoice or receipt for mixed sales
A VAT-registered taxpayer may also use different invoice or receipt for the taxable, exempt and
zero-rated components of its sales. Provided that:
a. If the sale from VAT, the term “VAT-EXEMPT SALE” shall be written or printed
prominently on the invoice or receipt.
b. If the sale is subject to zero percent (0%) VAT, the term “ZERO-RATED SALE” shall
be written prominently on the invoice or receipt.

It must be noted that these requirements are very important in substantiating the correct Output
VAT and in substantiating the claim for refund or tax credit for input VAT for zero-rated sales.

INVOICING REQUIREMENT
A VAT-registered person shall issue a:
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services.

All persons subject to internal revenue tax shall issue duly registered receipts prepared at least in
duplicate, for each sale or transfer of merchandise or for services rendered valued at P100.00 or
more.

Content of the VAT invoice or official receipt

1. Name of Seller
2. Business Style of the Seller
3. Business Address of the Seller
4. Statement that the seller is a VAT-registered person, followed by his TIN
5. Name of Buyer
6. Business Style of Buyer
7. Address of Buyer
8. TIN of buyer, if VAT-registered and amount exceeds P 1,000.00
9. Date of transaction
10. Quantity
11. Unit cost
12. Description of goods or properties or nature of the service
13. Purchase price plus the VAT, provided that:
• The amount of tax shall be shown as a separate item in the invoice or receipt;
• If the sale is exempt from VAT, the term “VAT-EXEMPT SALE” shall be written
or printed prominently on the invoice or receipt;
• If the sale is subject to zero percent (0%) VAT, the term “ZERO-RATED SALE”
shall be written or printed prominently on the invoice receipt; and
• If the sale involves goods, properties or services some of which are subject to VAT
and some of which are zero-rated or exempt from VAT, the invoice or receipt shall
clearly indicate the breakdown of the sales price among its taxable, exempt, zero-
rated components, and the calculation of the VAT on each portion of the sale shall
be shown on the invoice or receipt.
14. Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
ACCOUNTING REQUIREMENTS
All persons subject to VAT shall maintain
1. Regular accounting records
2. Subsidiary sales journal
3. Subsidiary purchase journal

The daily transactions of the business are recorded on the subsidiary records.

FILING OF VAT RETURN

Who are required to file VAT returns?
• Any person or entity who, in the course of his trade or business, sells barters, exchanges,
leases goods or properties, and renders services subject to VAT, if the aggregate amount
of the actual gross sales or receipts exceeds P 3,000,000.00
• A person required to register as a VAT taxpayer but failed to register
• Any person who imports goods, whether or not made in the course of his trade or business,

Where to file the VAT return?

To the following in order of priority:
1. Authorized agent bank under the jurisdiction of the RDO/LTO where the taxpayer (head
office of the business establishments) is required to be registered
2. Revenue collection officer
3. Duly authorized treasurer of the municipality or city

Deadline of filing the Monthly VAT return

Manual filing
The monthly VAT return (BIR Form 2550M) shall be filed induplicate copies within 20 days from
the end of the month. the taxpayers shall fill-up triplicate copies. Two copies shall be filed at the
BIR and one copy shall be retained by the taxpayer.

Through Electronic Filing and Payment System (eFPS)

The deadline of monthly VAT declaration varies per business industry grouping:

Business Industry Period for filing Monthly VAT Declarations

Group A 25 days following the end of the month
Group B 24 days following the end of the month
Group C 23 days following the end of the month
Group D 22 days following the end of the month
Group E 21 days following the end of the month

*Detailed industry composition under RR26-2002

Deadline of the Quarterly VAT Return

The quarterly VAT return (BIR Form 2250Q) shall be filled within 25 days from the end of the
quarter.
QUARTERLY SUMMARY LISTS TO BE SUBMITTED BY ALL VAT TAXAPYERS
1. Quarterly summary list of sales to regular buyers or customers, casual buyers or costumers
and output tax
2. Quarterly summary list of local purchase and input tax
3. Quarterly summary list of importation

Regular buyer or customer is a buyer or customer who are engaged in business or exercise of
profession with whom the taxpayer had transacted at least six transactions in the previous year or
current year regardless of the amount per transaction.

Casual buyer or customer is a buyer or customer who are engaged in business or exercise of
profession with individual purchase or transaction amounting to P 100,000 or more but did not
qualify as a regular buyer or customer.

Illustration
The following relate to Mr. Ander’s sales to several business and professional customers in the
previous year.

Customer name Purchase range Frequency of purchase

Danio Aga, M. D P 10,000- 50,000 5 times
Bentong Corporation P 200,000 1 times
John Cuarezma, CPA P 80,000- P120,000 8 times
DEF Corporation P 10,000- P 30,000 7 times

John Cuarezma and DEF Corporation are regular buyers or customers. Bentong Corporation is
a casual buyer or customer.

Content of the Quarterly summary list of sales

1. BIR registered name of the buyer engaged in business or profession
2. TIN of buyer for sales subject to VAT
3. Exempt sales
4. Zero-rated sales
5. Sales subject to VAT
6. Output tax

Content of the Quarterly summary lists of purchase

1. BIR registered name of the supplier
2. Address of the supplier
3. TIN of the supplier
4. Exempt purchases
5. Zero-rated purchases
6. Purchased subject to VAT (services, capital goods, and goods other than capital goods)
7. Creditable input tax
8. Non-creditable input tax
Content of the Quarterly summary lists of importation
1. Import entry declaration number
2. Assessment or release order
3. Date of importation
4. Name of supplier (Seller)
5. Country or origin
6. Dutiable value
7. Charges before release from Custom’s custody
8. Landed cost (Exempt and taxable)
9. VAT paid
10. Official Receipt number
11. Date of VAT payment

Deadline of summary list of sales or purchase

These shall be submitted by the taxpayer before the 25 th day of the month following the close of
the taxable quarter.

Penalties for failure to submit summary list

For each failure to file, keep or supply a statement, list, or information on the date prescribed, the
taxpayer pays an administrative penalty of P1,000, unless such failure was due to reasonable cause
and not to willful neglect. The aggregate amount to be imposed for such failures during the taxable
year shall not exceed P 25,00.

Willful failure by the taxpayer to keep any record and supply the correct information at the time
or times required shall be subject to criminal penalty upon conviction of the offender under the
Tax Code of 1997.

The imposition of the penalties under the Tax Code and the compromise of the criminal liability
on such violations shall not relieve the violating taxpayer from the obligation to submit the required
documents.

The BIR RELIEF System

A taxpayer’s quarterly sales and purchases are submitted to the BIR’s Website through the
RELIEF Data Entry System.

The Reconciliation of Listing for Enforcement (RELIEF) System supports the third-party
information program and voluntary assessment program of the Bureau of Internal Revenue through
the across-refencing of third-party information with the taxpayer’s quarterly summary lists of sales
and purchases.

Suspension of business operations and temporary closure of business

The CIR or his authorized representatives are empowered to suspend business operations for any
of the following violations.

A. For VAT-registered person

a. Failure to issue receipt or invoices
 b. Failure to file VAT return
c. Understatement taxable sales or receipt by 30% or more of hid correct taxable sales or
receipt for the taxable quarter
B. Failure to register as a taxpayer

The temporary closure of the establishment shall be for the duration of not less than 5 days and
shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner
in the closure order.

Cancellation of VAT registration

The approval of a request for cancellation of VAT registration shall be effective on the first day of
the month following the month of the approval of the cancellation.

Illustration
Troy Corporation requested for the cancellation of his VAT registration for his continuous liability
exceed the VAT threshold after the expiration of the three-year prescriptive period. The request
was approved on May 15,2020.

Troy recorded the following sales during May and June of 2022:

1st half of the month P 100,000 P 125,000

2ndhalf of the month 150,000 175,000
Total P 250,000 P 300,000

Troy shall pay VAT on the entire P250,000 sales in May. Troy shall pay the percentage on the
P300,000 sales in June and each month thereafter.

Liability of a non-VAT person who issues a VAT invoice/receipt

Non-VAT taxpayers who charge output VAT on their sales shall be subject to the usual percentage
tax, and output VAT without the benefit of an input tax plus a 50% surcharge.

Illustration
Mr. Andaya, a non-VAT taxpayer, reported sales of P 168,000 and paid p5,040 percentage tax for
the March 2020. An examination of his records revealed the following:

Total sales P 150,000

Output VAT charged 18,000
Total invoice P 168,000

Mr. Andaya shall be given the following penalty assessment:

Percentage tax (P 168,000 x 3%) P 5,040

Output VAT 18,000
Plus 50% surcharge (P18,000 x 50%) 9,000
Gross amount due P 32,040
Less: Percentage tax paid 5,040
Net amount due P 27,000

FINAL WITHHOLDING BY THE GOVERNMENT OR GOCCs

The legal requirement for the final withholding of VAT shall apply if the goods or services
purchased from VAT suppliers were vatable.

Illustration 1
The National Food Authority (NFA) started buying rice to enforce a suggested retail price of price
which was mandated by the Bureau of Agriculture. NFA purchased a total of P4,000,000 rice from
various VAT-registered dealers.

The purchase of rice is not subject to the final VAT. Hence, the NFA shall not deduct the 5% final
withholding VAT. However, if the dealers opted to subject the rice sales to VAT, the same shall
be subjected to the 5% final withholding VAT.

Illustration 2
Assume the same illustration in the preceding problem, except that the purchase was made by NFA
from non-VAT registered dealer?

The purchase of rice shall not be subjected to the final VAT. It shall not likewise be subjected to
the 3% final percentage tax because the goods purchase (rice) is exempt from tax.

Illustration 3
The Department of Environment and Natural Resources (DENR) purchased P 500,000 worth of
the office supplies from Lowcost Company, a non-VAT supplier.

Since the goods purchased were vatable but were purchased from non-VAT suppliers, the DENR
shall withhold the 3% percentage tax based on the purchase price.

Exception to the 5% final withholding tax

1. Lease or use of proprietary rights of non-residents -subject to 12% final VAT
2. Purchase of goods or services arising from projects funded by the Official Development
Assistance (ODA) under RA 8182

Withholding requirements on income tax

The obligation of the government and GOCCs to withhold VAT is a separate obligation from that
of the obligation to withhold income tax.

Illustration
The Department of Transportation and Communication (DOTC) has its online website database
maintained by Chinook IT Solutions, a branch of Chinook IT Solutions based in China. DOTC has
its internet domain hosted by Indiatech Solutions Company, a company based in Mumbai, India.

During the quarter, DOTC was billed P 896,000 by Chinook IT Solutions for web maintenance
fee. DOTC also received P 100,000 billing for webhosting fee by Indiatech Solutions Company.
If Chinook is VAT taxpayer
Since Chinook IT Solutions is resident, DOTC shall subject the website maintenance fee to 5%
final withholding VAT as follows:

Billing P 896,000
Divide by: 112%
Maintenance fee P 800,000
Multiply by: VAT withholding rate 5%
Final withholding VAT P 40,000
Expanded withholding tax (2% x P800K) P 16,000

The withholding tax on income on the website maintenance and the web hosting service is deemed
applicable since the website is used in service here in the Philippines. By situs rule, the services
on the website which is used within must be considered done within thereby making the resulting
service income within.

DOTC shall pay Chinook IT Solutions the following:

Billing P 896,000
Less: Due to BIR
Final withholding VAT 40,000
Expanded withholding tax 16,000
Cash payable to Chinook IT Solutions P 840,000

If Chinook is a non-VAT taxpayer

If Chinook is a non-VAT taxpayer, the maintenance fee shall be subjected to a 3% final percentage
tax and 2% expanded withholding tax as follows:

Billing (Maintenance fee) P 896,000

Multiply by 3%
3% percentage tax P 26,880
Expanded withholding tax P 17,920

DOTC shall pay Chinook IT Solutions the following:

Billing P 896,000
Less: Due to BIR
Final percentage tax 26,880
Expanded withholding tax 17,920
Cash payable to Chinook IT Solutions P 851,000

Withholding for Indiatech

Since the Indiatech Solutions Company is non-resident, DOTC shall subject the billing to the final
withholding VAT and the final withholding tax.

DOTC shall pay Indiatech Solutions Company the following:

Billing P 100,000
Less: Due to BIR
Expanded withholding tax (30% x P100K 17,920
Cash payable to Chinook IT Solutions P 70,000

DOTC shall separately pay the BIR the P12,000 final withholding VAT, computed as 12% x
P100,000.

The final withholding VAT is not deductible against the service fee because it is presumed
“passed-on” by Indiatech, the non-resident service provider, and is deemed “withheld” by DOTC,
the withholding agent. Note that non-resident foreign corporations are subject to 30% final
withholding tax on income.

Purchase for ODA funded project

Under the TRAIN law, government purchases for projects funded by the ODA shall be exempt
from the 5% final withholding tax. This would mean that the taxpayer supplying goods or services
to ODA funded projects can claim full credit on input VAT on such sales.

The same withholding exemption shall be maintained even after the transition to tax credit system
by 2021.

Discussion Questions
1. Enumerate the tax credit or deductions from the Net VAT payable.
2. What transactions are subject to advanced input VAT?
3. Discuss the treatment of excess output and excess input VAT.
4. Discuss the treatment of input VAT on mixed transactions.
5. Enumerate the VAT compliance requirements.
6. Differentiate regular buyers from casual buyers.
7. Enumerate the bases of suspension of business and temporary closure of business.
8. What are the liabilities of a person who intentionally or erroneously issues a VAT invoice
or receipt?